All Forum Posts by: Brian Schmelzlen

Karina,

Besides focusing on your education, there are 2 things that you can do immediately.  The first is look at your credit score, and if it is anything less than excellent start taking steps to improve it.  The second thing is to get a job.  If you want your career to be in the real estate field, then getting a job there to learn and gain experience is invaluable.  If you get a job outside of real estate (assuming you are interested in real estate investing, but not as a career), the more of an income history you can show the banks the more comfortable they will be lending to you.

If you are purely interested in the cash flow and not appreciation, I would go with the mobile homes.  I personally like to have better appreciation (but make the deal based on cash flow only), but its all about your goals.

Hi Liz,

I think that this goes back to a basic financial concept of risk and reward.  You accept greater risk in making investments, and in return you expect a greater potential reward.  If you want safer investments, you give up a greater potential reward.

Betting on appreciation in the future is a lot riskier than analyzing current cash flow and making an investment based on that, but it could end up with a much greater return as your family friend noticed.

It all comes down to what is your risk tolerance, and what are your goals.

Hi Robin.

Definitely do not commingle funds, and by that I mean do not have all your personal and LLC funds going into and out of the same bank account. There is a legal concept called "piercing the corporate veil" (applies to LLCs also), and commingling funds is one of the surest ways to lose your liability protection.

You should have cash reserves when you create the LLC (again because the "piercing the corporate veil" concept), but that does not mean enough money to cover all unforeseeables. I tend to think 2 months of expected operating expenses is enough. You can always put in more money.

If you have $10k in reserves and due to unexpected repairs you need to put in $5k more, you can do so in 1 of 2 ways. You can either make a loan to the LLC as you suggested, in which case there should be a note, regular payments, and interest at least at AFR. Your other option is to make a capital contribution to the LLC. You would simply have the LLC book it as a contribution, eventually record it that way on your tax return, and you can always take the money back out as a distribution later.

Another question to ask is if the CPA has dealt with the debt financed distribution rules (if you are planning on using refis to take cash of out of your properties), and how to minimize its impact.

I am not a wholesaler so take my opinion with a grain of salt, but I would tell him.  He might try to use it as a negotiating point, but don't let him.  It is either a good deal for him or not.

The seller, on the other hand, I would avoid telling.

I am not opposed to the idea because I think it is good for asset protection, especially as you start to grow your portfolio. However, if it is a single-member LLC (particularly a brand-new one), the banks will look at your personal assets and liabilities as well as the LLC's.

Both have their advantages and disadvantages, obviously.

You should definitely buy in a market you understand, but that does not have to be your local market if you are willing to do the work to get to know that market.  Given that you are in NY, I would lean towards purchasing in an area with a higher cap rate, and going for the multi as I think you would get a much better return.